Natural gas company shareholders make final push for disclosure of risks related to hydraulic shale fracturing

As the proxy season nears its end, shareholder groups pushing for more disclosure of the risks of the use of hydraulic fracturing in natural gas drilling are making their final pitch.

On June 11, shareholders of Chesapeake Energy Corp., an Oklahoma-based firm with vast operations in the Marcellus Shale, were to cast their votes on a proposal from Green Century Equity Fund of Boston, which asked the company to talk more about the financial and environmental risks associated with the practice.

Three days later, shareholders of Texas-based Ultra Natural Resources, another Marcellus player, are set to vote on virtually the same proposal.

Hydraulic fracturing, or “fracing,” is a process that pumps millions of gallons of water, sand and additives at high pressure into unconventional gas wells to break up shale rock and release the natural gas trapped inside. The process is used in areas around the country, including the Marcellus Shale formation.

Because it’s a hot topic these days and because all the M&A activity in the oil and gas sphere comes with mountains of risk-detailing documents, the shareholder groups pushing the proposals are employing creative peer pressure to further their cause.

For example, The Park Foundation, a shareholder of ExxonMobil Corp. scolded the company for being too coy in its risk discussion after announcing it would buy shale-heavy energy firm XTO for $41 billion.

“While we do not believe that any company is providing sufficiently comprehensive disclosures of the myriad of risks all companies involved with fracturing face in their filings, ExxonMobil’s failure to report on any risks is particularly problematic and lags behind sector peers,” the group stated in its shareholder proposal.

At ExxonMobil’s meeting in May, 26 percent of shareholders voted in favor of the proposal.

But if the Park Foundation couldn’t find the juicy disclosure in Exxon’s documents, the Green Century Equity Fund felt it hit a goldmine, writing that the merger agreement contained “a striking indication that future regulations have the potential to dramatically influence natural gas development using hydraulic fracturing.”

Using the details of the deal to nudge shareholders of Williams Companies Inc., an Oklahoma-based Marcellus driller and midstream company, to vote on a similar measure, Green Century wrote: “ExxonMobil protected its right to back out of the deal if state or federal regulations significantly restrict hydraulic fracturing, rendering it illegal or ‘commercially impracticable.’”

To frac or not to frac is the difference between a $41 billion deal and no deal, the group argued. Williams shareholders voted 42 percent in favor of the proposal.

While companies ubiquitously urge shareholders to vote against such proposals, interest in this kind of disclosure is growing.

At the Cabot Oil & Gas annual meeting in April, more than 36 percent of voting shareholders cast a ballot in favor of more disclosure. About 31 percent of EOG shareholders said the same during the company’s April meeting.